LT GROUP, INC. MANAGEMENT REPORT ITEM 1. BUSINESS 1.1 ...

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LT GROUP, INC.

MANAGEMENT REPORT

ITEM 1. BUSINESS

1.1. CORPORATE HISTORY

LT Group, Inc. (“LTG” or the “Company”), originally incorporated on 25 May

1937 as “The Manila Wine Merchants, Inc.”, a trading company, is now a

holding company with principal office at the 11th Floor, Unit 3 Bench Tower,

30th St. Corner Rizal Drive Crescent Park West 5 Bonifacio Global City, Taguig

City. It is listed with the Philippine Stock Exchange (“PSE”) since 1947 and

was granted an extension of its corporate life for another 50 years in 1987. In

1995, it changed its corporate name to “Asian Pacific Equity Corporation” and

its primary purpose to that of a holding company.

In 1999, the Company acquired Twin Ace Holdings Corporation (now known

as “Tanduay Distillers, Inc.” and hereafter referred to as “TDI”, a producer of

distilled spirits) through a share swap with Tangent Holdings Corporation

(“Tangent” or the “Parent Company”) - the swap resulted in Tangent increasing

its ownership in LTG to 97.0%. The Company thereafter changed its corporate

name to “Tanduay Holdings, Inc”.

In 2012, in preparation for the Company’s new role, it adopted the corporate

name “LT Group, Inc.”. A series of restructuring activities followed in 2012

through 2013 whereby LTG expanded and diversified its investments to include

the beverage, tobacco, property development, and banking businesses of Mr.

Lucio C. Tan and his family and assignees (collectively referred to as the

“Controlling Shareholders” or the “Tan Companies”), to wit:

The Company has interests in the following businesses:

• Distilled Spirits—The Company conducts its distilled spirits business

through its 100%-owned subsidiary TDI. TDI is the third-largest

distilled spirits producer in the Philippines according to Nielsen

Philippines, with an approximate 22.5% share of the Philippine spirits

market in 2020.

• Beverages— The Company owns 99.9% of Asia Brewery, Inc.

(“ABI”), one of the Philippines’ leading producers of non-alcoholic

beverages which includes energy drinks, bottled water, and soymilk.

ABI conducts its alcoholic beverage business through a 50% stake in

AB Heineken Philippines, Inc. (“ABHP”), which produces bear and

alcopop.

• Tobacco— The Company owns 99.6% in Fortune Tobacco

Corporation (“FTC”), which in turn owns 49.6% of PMFTC Inc.

(“PMFTC”). PMFTC is the leading tobacco manufacturer and

distributor in the Philippines with a 67.2% market share in the year

2020.

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• Banking— The Company conducts its banking business through

Philippine National Bank (“PNB”), a universal bank currently listed in

the Philippine Stock Exchange (“PSE”). The Corporation’s indirect

ownership in PNB is approximately 56.47%.PNB is the Philippines’

fourth largest private commercial bank in terms of total assets.

• Property Development— The Company conducts its property

development business through Paramount Landequities, Inc. and

Saturn Holdings, Inc., with an effective indirect ownership of 99.6% in

Eton Properties Philippines, Inc. (Eton). Eton has a diverse portfolio of

property development projects in various areas throughout the

Philippines, primarily in Metro Manila and surrounding areas, and

access to the large land bank of the Lucio Tan Companies. Eton’s

project portfolio mainly comprises residential real estate projects

(including large-scale township projects). Eton also develops and

leases out commercial properties to retail and BPO tenants.

1.2. DESCRIPTION OF SUBSIDIARIES

A. Distilled Spirits

Tanduay Distillers, Inc. (“TDI”)

TDI was incorporated in the Philippines in 1988 and is primarily engaged in the

business of manufacturing, compounding, bottling, importing, exporting, buying,

selling or otherwise dealing in, at wholesale and retail, such finished goods as

rhum, brandy, whiskey, gin and other liquor products, and all equipment,

materials, supplies used in the manufacture of such finished goods.

The following are subsidiaries of TDI:

• Asian Alcohol Corporation (AAC) – 95%

AAC is a domestic corporation registered with the SEC in 1973. The company is

primarily involved in the manufacture of refined and/or denatured alcohol, the

production of fodder yeast, and in the sale of such liquids or products.

• Absolut Distillers, Inc. (ADI) – 96%

ADI was incorporated in the Philippines in 1990 to engage in, manufacturing,

distilling, importing, exporting, buying, selling or otherwise deal in alcohol,

molasses, bioethanol, biogas and biomass for renewable energy at wholesale and

retail. ADI is also engaged in the generation of renewable energy from solar

power for lighting and power purposes.

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• Tanduay Brands International, Inc. (TBI) – 100%

TBI was incorporated in 2003 to handle the marketing of TDI’s products. In 2016,

LTG sold its 100% ownership interest in TBI to TDI. In 2017, TBI opened its

first store “Tanduay” in Century Park Hotel in Manila.

B. Beverage

Asia Brewery, Inc. (“ABI”)

ABI was incorporated in the Philippines in 1979. In 2012, ABI, in partnership

with Corporacion Empresarial Pascual S. L. of Spain, formed ABI Pascual

Holdings Pte. Ltd., a jointly controlled entity organized and domiciled in

Singapore. Later that year, the joint venture established ABI Pascual Foods

Incorporated (APFI), an operating company in the Philippines engaged in the sale

and distribution of yogurt products in the country.

In 2016, ABI and Heineken International B.V. (HIBV) of the Netherlands

partnered to form AB Heineken Philippines Inc., a jointly controlled corporation

engaged in the manufacture and sale of alcoholic beverages, non-alcoholic beer,

malt-based beverages and related products of the aforementioned beverages.

Pursuant to the partnership, ABI transferred its alcoholic beverage business to

ABHP. Brands now controlled by ABHP include ABI-developed brands, Beer na

Beer, Colt 45 and Brew Kettle, and HIBV’s Heineken and Tiger.

On December 21, 2020, ABI entered into an amended Shareholders’ Agreement

contemporaneously with the Termination Deed with Heineken and ABHP, to

wind down the business and operations of ABHP effective December 31, 2020.

The amended Shareholders’ Agreement was entered into to amend, restate and

eventually terminate the Shareholders’ Agreement entered into on May 27, 2016

in its entirety, including the other agreements covered by the said agreement.

In addition, in accordance with the Termination Deed, ABI acquired fixed assets,

including beer equipment, inventories and spare parts, from ABHP for purchase

price totaling to P=1.6 billion.

The following are the wholly owned subsidiaries of ABI:

• Agua Vida Systems, Inc. (“AVSI”)

AVSI was incorporated in the Philippines in 1994 as a purified water

distribution and refilling company for homes and offices.

• Waterich Resources Corporation (“WRC”)

WRC, incorporated in the Philippines in 1997, performs manufacturing of

Absolute Pure Distilled Drinking Water and Summit Water for ABI.

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• Packageworld, Inc. (“PWI”)

PWI, incorporated in the Philippines in 1998, manufactures corrugated

cartons for wholesale.

• Interbev Philippines, Inc. (“IPI”)

IPI was incorporated in the Philippines in 2003 for the production and

distribution of Cobra and energy drinks.

• AB Nutribev, Inc. (“ABNC”)

ABNC, incorporated in the Philippines in 2014, manufactures and sells

dairy and soy milk-based beverages.

• Asia Pacific Beverages Pte. Ltd. (“APBPL”)

APBPL was incorporated in 2014 under the laws of Singapore as an

investment holding company for business opportunities in the region.

ABPBL acquired 90% of Asia Pacific Beverages Myanmar Co. Ltd.

(APBM) in April 2017. APBM is a company incorporated in the Republic

of the Union of Myanmar engaged in the manufacture and sale of non-

alcoholic ready-to-drink beverage products in Myanmar.

C. Tobacco

Fortune Tobacco Corporation (“FTC”)

FTC was incorporated in the Philippines in 1965 to engage in cigarette

manufacturing, selling, importing and exporting. FTC was responsible for

introducing some of the most successful local cigarette brands in the Philippines,

including the Fortune, Champion and Hope menthol brands. Prior to the creation

of PMFTC, FTC was the largest domestic tobacco business in the Philippines.

FTC currently has an effective 49.6% stake in PMFTC, the business combination

between the Philippine operations of Philip Morris International and the

operations of FTC. PMFTC now carries the FTC brands and Philip Morris’

Marlboro.

D. Banking

Philippine National Bank (“PNB”)

PNB was incorporated in the Philippines in 1916. It is the country’s first

universal bank and the fourth largest private local commercial bank in terms of

assets as of 31 December 2020. PNB celebrated its Centennial Year in 2016.

It provides a full range of banking and other financial services to diversified

customer bases including government entities, large corporate, middle market,

SME and retail customers, with PNB having the distinction of being one of the

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only five authorized Government depository banks in the Philippines. The

current PNB is a result of the merger between PNB and Allied Banking Corp.,

which was completed in 2013.

The following companies are owned by PNB:

Industry

Principal Place of

Business/Country of

Incorporation

Functional

Currency

Percentage of

Ownership

Direct Indirect

Subsidiaries

PNB Savings Bank (PNBSB) (a) Banking Philippines Php 100.00 –

PNB Capital and Investment Corporation (PNB Capital) Investment - do - Php 100.00 –

PNB Holdings Holding Company - do - Php 100.00 –

PNB Securities, Inc. (PNB Securities) Securities Brokerage - do - Php 100.00 –

PNB General Insurers, Inc. (PNB Gen) (b) Insurance - do - Php 65.75 −

PNB Corporation – Guam (c) Remittance USA USD 100.00 –

PNB International Investments Corporation (PNB IIC) Investment - do - USD 100.00 –

PNB Remittance Centers, Inc. (PNB RCI) (d) Remittance - do - USD – 100.00

PNB Remittance Co. (Nevada) (e) Remittance -do- USD – 100.00

PNB RCI Holding Co. Ltd. (PNB RHCL) (e) Holding Company - do - USD – 100.00

PNB Remittance Co. (Canada) (f) Remittance Canada CAD – 100.00

PNB Europe PLC Banking United Kingdom GBP 100.00 –

Allied Commercial Bank (ACB) Banking China CNY 99.04 –

PNB-Mizuho Leasing and Finance Corporation (PMLFC)

(formerly PNB-IBJL Leasing and Finance Corporation) Leasing/Financing Philippines Php 75.00 –

PNB-Mizuho Equipment Rentals Corporation (formerly PNB-

IBJL Equipment Rentals Corporation (g) Rental - do - Php – 75.00

PNB Global Remittance & Financial Co. (HK) Ltd.

(PNB GRF)

Remittance Hong Kong HKD 100.00 –

Allied Banking Corporation (Hong Kong) Limited (ABCHKL) Banking - do - HKD 51.00 –

ACR Nominees Limited (h) Banking - do - HKD – 51.00

Oceanic Holding (BVI) Ltd. Holding Company British Virgin Islands USD 27.78 –

Associate

Allianz-PNB Life Insurance, Inc. (APLII) Insurance - do - Php 44.00 – a) Pending SEC approval of change in name and conversion to a holding company as of December 31, 2020 (see further discussion below and Note 37) (b) 34.25% indirect ownership by the Group as of December 31, 2019 through PNB Holdings was disposed in 2020 (see further discussion below); remaining

65.75% direct ownership was reclassified to ‘Assets of disposal group classified as held for sale’ (see Note 36). (c) Ceased operations on June 30, 2012 and license status became dormant thereafter (d) Owned through PNB IIC (e) Owned through PNB RCI (f) Owned through PNB RHCL (g) Owned through PMLFC

(h Owned through ABCHKL

Bank Holding Companies

In 2013, LTG acquired indirect ownership in PNB by acquiring several companies

with a total ownership interest in PNB of 59.83% (collectively referred to as

“Bank Holding Companies”), to wit:

1. Allmark Holdings Corp.

2. Dunmore Development Corp.

3. Kenrock Holdings Corp.

4. Leadway Holdings, Inc.

5. Multiple Star Holdings Corp.

6. Pioneer Holdings & Equities, Inc.

7. Donfar Management Ltd.

8. Fast Return Enterprises Ltd.

9. Mavelstone International Ltd.

10. Uttermost Success Ltd.

11. Ivory Holdings, Inc.

12. Merit Holdings & Equities Corp.

13. True Success Profits Ltd.

14. Key Landmark Investments Ltd.

15. Fragile Touch Investments Ltd.

16. Caravan Holdings Corp.

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17. Solar Holdings Corp.

18. All Seasons Realty Corp.

19. Dynaworld Holdings Inc.

20. Fil-Care Holdings Inc.

21. Kentwood Development Corp.

22. La Vida Development Corp.

23. Profound Holdings Inc.

24. Purple Crystal Holdings, Inc.

25. Safeway Holdings & Equities Inc.

26. Society Holdings Corp.

27. Total Holdings Corp.

As of 31 December 2020, LTG has majority ownership over the Bank Holding

Companies with 56.47% ownership of PNB.

E. Property Development

Saturn Holdings, Inc. (“Saturn”)

Saturn Holdings, Inc. was incorporated in the Philippines in 1997 as a holding

company.

Paramount Landequities, Inc. (“Paramount”)

Paramount, incorporated in the Philippines in 1988, is a real estate development

company.

Eton Properties Philippines, Inc. (“Eton”)

Eton was incorporated and registered in the Philippines in 1971 under the name

“Balabac Oil Exploration & Drilling Co., Inc.” to engage in oil exploration and

mineral development projects in the Philippines. It became a holding company

in 1996 and in 2007, changed its name to Eton Properties Philippines, Inc.

simultaneous with converting itself into a real estate development company.

The following real estate companies are 100%-owned by Eton:

• Belton Communities, Inc. (“BCI”)

Belton Communities, incorporated in 2007, caters primarily to the

middle-income market segment with well-located communities.

• Eton City, Inc. (“ECI”)

ECI, incorporated in 2008, is a realty and holding company.

• FirstHomes, Inc. (“FHI”)

FHI was incorporated in 2010 as a real estate development company.

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• Eton Properties Management Corporation (“EPMC”)

EPMC, incorporated in 2011, is a realty management company. It began

commercial operations in 2016.

ITEM 2. DIRECTORS AND OFFICERS

Please refer to Item 5 of the Information Statement.

ITEM 3. MANAGEMENT DISCUSSION AND ANALYSIS

3.1. RESULTS OF OPERATIONS

The following discussion and analysis of the Group’s financial condition and results of

operations should be read in conjunction with the consolidated financial statements as

at December 2020, 2019 and 2018 included in this report.

2020 vs 2019

CONSOLIDATED RESULTS OF OPERATIONS

(In millions) 2020 2019

Revenues P=94,428 P=94,151

Cost of Sales 42,859 46,802

Equity in Net Earnings of Associates and Joint Ventures 17,615 14,813

Operating Expenses 49,948 34,608

Operating Income 19,236 27,554

Other income-net 2,351 3,589

Income Before Income Tax 21,587 31,143

Total Net Income 22,326 27,566

Net Income Attributable to Equity Holders of the Parent Company 21,022 23,118

LT Group, Inc. (LTG) posted consolidated net income of P=22.3 billion for the year

ended 31 December 2020, 19.0% lower than the P=27.6 billion reported for the same

period last year.

The consolidated net income attributable to equity holders of LTG was P=21.0 billion

for 2020, 9.1% lower than 2019’s P=23.1 billion. This was on account of the decline in

the operating results of the banking and property development segments, which offset

the improvements in the net incomes of the tobacco, distilled spirits and beverage

segments. The banking segment’s net income decreased from P=9.9 billion for the year

ended 31 December 2019 to P=2.8 billion in the same period of 2020. Property

development segment’s net income was P=802 million in 2020 and P=900 million for

2019. The tobacco segment’s net income increased by P=1.3 billion from P=15.6 billion

in 2019 to P=16.9 billion in 2020. Distilled spirits segment’s net income was P=1.1 billion

significantly better than the P=676 million for 2019. The beverage segment’s net income

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of P=591 million in 2020 was higher compared to the reported income of P=398 million

in the same period last year. Equity in net earnings in VMC amounted to P=264 million.

Consolidated revenues amounted to P=94.4 billion for the year ended 31 December 2020

slightly higher than the P=94.2 billion earned in 2019 mainly on account of the increased

revenues in the distilled spirits segment which outweighs the decline in all other

business segments revenues.

Cost of sales and services decreased by 8.4% from P=46.8 billion for the year ended

31 December 2019 to P=42.9 billion in the same period in 2020, primarily attributable

to the lower interest expense incurred on deposits and other borrowings by the banking

segment, lower sales volume by the beverage segment and decline in sales of the

property development segment.

Operating expenses amounted to P=49.9 billion in 2020 from P=34.6 billion in 2019 or an

increase of 44.3%. This was as a result of higher general and administrative expenses

by 51.6%, from P=31.6 billion in 2019 to P=47.9 billion in 2020 and is mainly due to the

additional provisions for impairment and credit losses for the anticipated impact of the

Corona Virus Disease 2019 (COVID-19) pandemic to the bank’s loan portfolio. Selling

expenses slightly decreased to P=2.1 billion in 2020 from P=3.0 billion in 2019 as lower

advertising and related expenses were incurred.

SEGMENT OPERATIONS

Tobacco

The tobacco segment’s net income was P=16.9 billion for the year ended 31 December

2020, higher than the P=15.6 billion of the same period last year primarily on account of

the increase in equity in net earnings from PMFTC (FTC’s 49.6% owned associate)

from P=15.4 billion last year to P=17.1 billion in 2020.

Banking

The banking segment’s net income was P=2.8 billion in 2020, lower than the P=9.9 billion

recorded in 2019 as the bank recognized significant provisions for impairment, credit

and other losses of P=16.9 billion during the year. On the other hand, there was a

substantial improvement in the current period’s net interest income and net gains from

trading and investment securities.

Interest income in the current period of P=47.0 billion was 7.1% lower compared to the

same period last year on account of the net decrease in interest income from loans and

receivables, trading and investment securities and interbank receivables. Total interest

expense’s significant reduction of 38.7% or P=7.0 billion was primarily due to the

decline in interest expense from high-cost deposit liabilities, bills and acceptances

payable and other borrowings partially offset by the increase in interest from bonds

payable. This resulted to net interest income of P=35.8 billion, 10.6% higher year-on-

year.

Net service fees and commission income were lower at P=3.7 billion in 2020 compared

to 2019’s P=4.2 billion due to lower volume of banking transactions and waived fees on

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bank transfers and overseas remittances in compliance with Bayanihan to Heal as One

Act.

Trading and investment securities and net foreign exchange gains were higher at

P=4.3 billion in 2020 compared to 2019’s P=2.2 billion as the bank took advantage to

dispose of securities with high fair market values.

Operating expenses increased by 56.7% mainly due to larger provisions for impairment,

credit and other losses amounting to P=16.9 billion in 2020 in anticipation of the impact

of the COVID-19 pandemic to the bank’s loan portfolio compared to P=2.9 billion that

was provided in 2019.

Distilled Spirits

The distilled spirits segment posted a net income of P=1.1 billion for the year ended 31

December 2020, significantly greater than the P=676 million reported in the same period

last year.

Net revenues were higher by 29.8% y-o-y to P=25.0 billion in 2020 mainly due to higher

pricing and improvement in the sales volume of liquor.

Cost of sales increased by 32.9% to P=21.4 billion in the current period as against

P=16.1 billion in the same period last year primarily due to sales volume and higher

excise taxes. Gross profit margin was at 14.7% in 2020 lower than the 16.7% in 2019.

Operating expenses were lower at P=1.8 billion in 2020 compared P=2.2 billion in 2019

as lower advertising and other related expenses were incurred.

Property Development

The property development segment reported a net income of P=802 million in 2020

lower than the P=900 million in 2019.

Rental revenue for the current period accounted for P=1.8 billion or 73.3% of revenues,

representing an 2.9% growth over the same period in 2019, as lease contracts were

renewed at higher rates for the BPO offices. On the other hand, real estate sales were

54.9% lower y-o-y to P=642 million.

Operating expenses were lower by 19.3% from P=919 million in 2019 to P=742 million

in 2020 as commissions, advertising and promotional expenses and general and

administrative expenses decreased.

Beverage

The beverage segment’s net income was higher at P=591 million for the year ended

December 31, 2020 from P=398 million last year.

Revenues of the beverage segment were lower at P=13.3 billion in 2020 compared to

2019’s P=15.9 billion largely on account of lower sales volume from bottled water and

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the packaging business. Overall gross profit margin declined to 26.0% from 26.9% as

a result of the unfavorable sales mix.

Operating expenses decreased by 10.1% to P=2.3 billion in 2020 from P=2.6 billion in

2019 on account of lower advertising and promotional expenses.

In 2020, ABI stopped recording share in losses of its affiliate ABHP as recognition of

losses should only be to the extent of investment cost and is consistent with the changes

in the plan for the alcoholic beverage business. Equity in net losses from ABHP

recognized in 2019 amounted to P=717 million.

2019 vs 2018



Revenues P=94,151 P=75,559









LT Group, Inc. (LTG) reported a consolidated net income attributable to equity holders

of P=23.1 billion for the year ended 31 December 2019, 42.7% higher than the

P=16.2 billion recorded for the same in 2018. This was on account of the improvement

in the operating results of the tobacco, banking and property development segments,

which more than offset the lower net income of the distilled spirits and beverage

segments. The tobacco segment’s net income increased by P=6.8 billion from

P=8.8 billion in 2018 to P=15.6 billion in 2019. The banking segment’s net income

improved by 1.6% from P=9.8 billion for 2018 to P=9.9 billion in 2019 on account of the

recorded increase in the bank’s core income comprising primarily of net interest income

and net service fees and commission. Property development segment’s net income was

P=900 million, 87.9% higher than the P=479 million in 2018. Distilled spirits segment’s

net income was P=676 million, 25.6% less than the P=909 million recognized for the

period ended 31 December 2018. The beverage segment’s net income decreased to

P=398 million in the current period from P=421 million in 2018. Equitized earnings from

the 30.9% owned VMC contributed P=251 million in 2019 compared to P=247 million in

2018.

Consolidated revenues amounted to P=94.2 billion for the year ended 31 December 2019,

24.6% more than the P=75.6 billion recognized in 2018 as banking, beverage and

distilled spirits revenues increased.

Cost of sales and services increased by 30.1% from P=36.0 billion for 2018 to

P=46.8 billion in 2019, primarily attributable to higher interest expense incurred in

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deposit liabilities and increased cost of sales of the distilled spirits and beverage

segments due to higher volume and raw materials cost.


increase of 9.9%. This was as a result of increased general and administrative expenses

by 9.8%, from P=29.8 billion in 2018 to P=32.7 billion in 2019 and higher selling expenses

by 11.5%.

SEGMENT OPERATIONS

Tobacco


2019, significantly higher than the P=8.8 billion for 2018 on account of the increase in

equity in net earnings from PMFTC (49.6% owned associate) from P=8.5 billion in 2018

to P=15.4 billion in 2019. PMFTC’s income increased due to favorable mix with

premium Marlboro accounting for a higher portion of sales volume and price increases

implemented in late August 2019.

Banking

The banking segment’s net income was P=9.9 billion for the year ended 31 December

2019 higher than the P=9.8 billion recorded in 2018.

Interest income from banking operations was at P=50.5 billion in 2019, 40.3% higher

than the P=36.0 billion earned in 2018, mainly on account of the expansion in loans,

interbank loans and trading and investment securities portfolios. Interest expense was

at P=18.2 billion for the period ended 31 December 2019, up 101.5% from P=9.0 billion

in 2018 primarily due to growth in deposit liabilities and other borrowings resulting to

a net interest income of P=32.4 billion, 19.9% higher year-on-year.

Net service fees and commission income improved from 2018’s P=3.5 billion to

P=4.2 billion in 2019 driven by the growth in deposit and credit card related fees.

Trading and investment securities and net foreign exchange gains were higher at

P=2.2 billion in 2019 compared to 2018’s P=1.1 billion. On the other hand, miscellaneous

income decreased by 72.2% to P=2.1 billion from P=7.4 billion, due to lower gain from

the sale of ROPA.

Operating expenses increased by 12.7% as growth in revenues particularly in interest

income and trading gains translated to higher business taxes and other related

administrative expenses.

Distilled Spirits

The distilled spirits segment posted a net income of P=676 million for the year ended 31

December 2019, lower than the net income of P=909 million reported in 2018.

Net revenues were higher by 6.3% y-o-y to P=19.3 billion in 2019 mainly due to the

improvement in liquor and bioethanol revenues.

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Cost of sales increased by 8.2% to P=16.1 billion in 2019 as against P=14.8 billion in 2018

primarily due to higher volume and raw material costs. Gross profit margin was lower

at 16.7% in 2019 compared to 18.1% in 2018.

Operating expenses were higher at P=2.2 billion in 2019 from P=2.1 billion in 2018, due

to higher advertising, repairs and maintenance and other administrative expenses.


The property development segment reported a net income of P=900 million for the year

2019, 87.9% greater than the P=479 million for 2018.

Leasing revenues in 2019 accounted for P=1.7 billion or 54.5% of revenues, representing

a 14.2% increase compared to 2018, as lease contracts were renewed at higher rates for

the BPO offices as well as the additional retail space at Eton Square Ortigas that was

completed in 2018. Real estate sales were 16.4% lower y-o-y to P=1.4 billion, but gross

profit margin improved to 53% from 29%.

Operating expenses were slightly lower at P=919 million in 2019 compared to 2018’s

P=947 million.

Beverage

The beverage segment’s net income was lower by 5.5% to P=398 million for the year

ended 31 December 2019 from P=421 million in the same period last year.

Revenues of the beverage segment were higher by 5.5% to P=15.9 billion in 2019 from

P=15.1 billion in 2018. This was driven by the growth in revenues in energy drinks,

bottled water and soymilk. Overall gross profit margin was flat at 27%.

Operating expenses increased by 9.5% to P=2.6 billion in 2019 from P=2.4 billion in 2018

on account of higher advertising, personnel, outside services, selling materials and

freight and handling expenses.

2018 vs 2017



Revenues P=75,559 P=63,727









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LT Group, Inc. (LTG) recorded a consolidated net income of P=20.6 billion for the year

ended 31 December 2018, 41.0% higher than the P=14.6 billion reported in 2017.

The consolidated net income attributable to equity holders of LTG was P=16.2 billion

for the year 2018, 49.5% more than 2017. This was on account of the improvement in

the operating results of the tobacco, banking, distilled spirits and property development

segments, which more than offset the lower net income of the beverage segment. The

tobacco segment’s net income increased by 100.0% from P=4.4 billion in 2017 to

P=8.8 billion in 2018. The banking segment’s net income was up by 14.3% from

P=8.6 billion for the year 2017 to P=9.8 billion in 2018. Distilled spirits segment’s 2018

net income was P=909 million, 44.1% higher than the P=631 million recognized for the

year ended 31 December 2017. Property development segment’s net income was P=479

million in 2018, 37.6% higher than the P=348 million in 2017. The beverage segment’s

net income of P=421 million in 2018 was lower by 23.7% compared to the reported

income of P=552 million in 2017. Equity in net earnings from the 30.9% stake in VMC

contributed P=247 million.

Consolidated revenues amounted to P=75.6 billion for the year ended

31 December 2018, 18.2% higher than the P=63.7 billion recognized in 2017 on account

of the increased revenues in the banking, distilled spirits, beverage and property

development segments.

Cost of sales and services increased by 21.2% from P=29.7 billion for the year ended 31

December 2017 to P=36.0 billion in the same period in 2018, primarily attributable to

higher interest expense on deposit liabilities and increased cost of sales of the beverage

and distilled spirits segments mainly due to the sugar tax imposed starting 2018 and

higher raw material costs.


increase of 14.5%. This was as a result of increased general and administrative

expenses by 16.1%, from P=24.4 billion in 2017 to P=28.3 billion in 2018 and increase of

0.3% year-on-year in selling expenses.

SEGMENT OPERATIONS

Tobacco


2018, significantly higher than the P=4.4 billion in 2017 on account of the increase in

equity in net earnings from PMFTC (FTC’s 49.6% owned associate) from P=8.5 billion

in 2017 to P=4.4 billion in 2018.

Banking

The banking segment’s net income was P=9.8 billion for the year ended 31 December

2018, 14.3% higher than the P=8.6 billion recorded for the year 2017.

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Interest income from banking operations was at P=36.0 billion in 2018, 30.6% higher

than the P=27.6 billion earned last year, mainly on account of higher interest income

from loans, investment securities and interbank loans receivables as well as the

improvement of Net Interest Margin (NIM) to 3.2% from 3.1%. Interest expense was

at P=9.0 billion for the year ended December 31, 2018, up 62.3% from P=5.6 billion in

same period of 2017 resulting to a net interest income of P=27.0 billion, 22.7% higher

year-on-year.

Net service fees and commission income improved from 2017’s P=3.2 billion to

P=3.5 billion in 2018 due to higher deposit, credit, interchange and bancassurance fees

income.

Miscellaneous income increased by 34.9% to P=8.6 billion from P=6.4 billion, due to

higher gain from the sale of Real and Other Properties Acquired (ROPA). On the other

hand, trading and net foreign exchange gains were lower at P=1.1 billion in 2018

compared to 2017’s P=2.2 billion.

Operating expenses increased by 16.5% primarily due to higher provisioning on loans,

taxes and licenses, depreciation, occupancy, personnel costs and miscellaneous

expenses.

Distilled Spirits

The distilled spirits segment posted a net income of P=909 million for the year ended 31

December 2018, a 44.1% increase from the net income of P=631 million reported in

2017.

Net revenues of P=18.1 billion in 2018 were higher by 8.0% y-o-y mainly due to the

improvement in sales of Tanduay Five Years rum, the Company’s flagship product, and

bioethanol revenues.

Cost of sales increased by 5.5% to P=14.8 billion in 2018 as against P=14.1 billion in 2017

primarily due to higher volume, raw material costs and depreciation. Gross profit

margin was at 18.1% in 2018, higher than the 16.2% in 2017.

Operating expenses were higher by P=214 million at P=2.1 billion in 2018, due to

increased selling and administrative expenses.


The property development segment reported a net income of P=479 million for the year

2018, 37.6% higher than the P=348 million for the year 2017.

Real estate sales of P=1.7 billion were 101.7% higher y-o-y and comprised 53.3% of

revenues. Rental revenue for the year 2018 accounted for P=1.5 billion or 46.7% of

revenues, representing a 7.7% growth over the same period in 2017, as lease contracts

were renewed at higher rates for the BPO offices as well as the additional retail space

completed in December 2017.

15

Operating expenses were higher by 29.5% from P=732 million in 2017 to P=948 million

in 2018.

Beverage

The beverage segment’s net income of P=421 million for the year ended 31 December

2018 was lower by 23.7% against P=552 million in 2017.

Revenues of the beverage segment were higher by 8.7% to P=15.1 billion in 2018 from

P=13.9 billion in 2017. This was driven by the growth in revenues in packaging, energy

drinks, bottled water and soymilk. Overall gross profit margin declined to 27.2% from

31.0% as a result of product mix, higher purchase price of raw materials, fuel and oil

as well as the excise tax on sweetened beverages.

Operating expenses were flat at P=2.4 billion for the years 2018 and 2017.

3.2. FINANCIAL CONDITION

2020

The Company’s consolidated Total Assets as of 31 December 2020 and 2019 amounted

to P=1.4 trillion and P=1.3 trillion, respectively. Current Assets increased by 29.9% or

P=157.7 billion and Noncurrent Assets were lower by P=70.4 billion or 9.5%.

The consolidated Current Assets increased by 29.9% from P=527.1 billion as of 31

December 2019 to P=684.8 billion. Cash and Cash Equivalents increased level from

P=184.9 billion as of end-2019 to P=304.1 billion as of 31 December 2020 on account of

higher Due from BSP, Interbank Loans Receivables, Securities Held Under Agreement

to Resell and Due from Other banks of the banking segment. Financial Assets at Fair

Value through Other Comprehensive income increased due to purchases of various

securities, net of disposal. Financial Assets at Amortized Cost-current increased due to

reclassification of currently maturing investments. Current portion of Loans and

Receivables declined by P=37.9 billion from end-2019 balance of P=260.9 billion on

account of lower current loans receivables by the banking segment. Inventories as of

31 December 2020 amounted to P=13.2 billion, 8.0% higher than end-2019 due to higher

ending inventory levels of the distilled spirits segment. On 11 December and 9 October

2020, PNB approved the sale of all its shareholdings in PNB General Insurers Co., Inc.

(PNB Gen) to Alliedbankers Insurance Corporation, an affiliate. As a result, the Group

reclassified all the assets and liabilities of PNB Gen to ‘Assets of disposal group

classified as held for sale’ and ‘Liabilities of disposal group classified as held for sale’,

respectively, in the consolidated statement of financial position

The 9.5% decrease in consolidated Noncurrent Assets was mainly due to the

movements in the Noncurrent portion of Loans and Receivables, Financial Assets

FVTOCI, Financial Assets at Amortized Cost, as well as Investment in associates and

joint ventures. Noncurrent portion of Loans and Receivables amounted to P=393.6

billion, P=17.7 billion lower than end-2019 level on account of the banking segments net

paydowns of loans and receivables and additional provision for impairment, credit and

other losses. Financial Assets at FVTOCI and Financial Assets at Amortized Cost were

lower by P=33.9 billion and P=20.2 billion, respectively on account of disposal of various

investment securities, net of purchases made as of 31 December 2020. Investment in

16

associates and joint venture decline of P=3.5 billion was due to higher dividends received

from PMFTC than equitized earnings during the year. Other noncurrent assets were

lower at P=6.0 billion as of end-2020. Deferred income tax assets (DTA) were higher

by P=6.5 billion, from P=2.4 billion as of end-2019 to P=8.9 billion as of 31 December

2020 as additional DTA was recognized on allowance for expected credit losses, for

which the bank has the benefit of tax deductions against future taxable income only

upon actual write-offs.

Consolidated Total Liabilities increased by 8.5% to P=1.1 trillion as of 31 December

2020 from P=1.0 trillion as of 31 December 2019. This was on account of the increase

in Total Current Liabilities by 8.8% from P=876.7 billion in 31 December 2019 to

P=953.5 billion as of the end of the current period and higher Noncurrent Liabilities by

6.6% from P=135.2 billion to P=144.0 billion.

Current portion of the banking segment’s Deposit Liabilities amounted to P=822.1

billion as of 31 December 2020, 6.5% higher than end-2019. Current portion of Bills

and Acceptances Payable increased by 40.8% brought by increase in the level of

interbank borrowing and repurchase agreements. Accounts payable and accrued

expenses were lower due to the settlements made during the year. Short-term debts as

of 31 December 2020 amounted to P=4.7 billion, 8.0% lower than end-2019 on account

of payments made by the parent company. Current portion of long-term debts

outstanding of P=1.0 billion as of 31 December 2019 increased to P=14.5 billion as of 31

December 2020 to recognize the bank’s maturing bonds payable. Other current

liabilities decreased from P=18.8 billion as of end-2019 to P=10.2 billion in current period

due to settlements made as of 31 December 2020. Financial liabilities at fair value

through profit or loss increased to P=701 million mainly from the increase in the volume

of transactions for the period. Income tax payable was higher by 46.0% versus the 31

December 2019 level due to the income tax provisions made in the current period.

The increase in the Noncurrent Liabilities was on account of the higher Noncurrent

Deposit Liabilities, Bills and Acceptances Payable net of current portion by P=12.3

billion and P=10.0 billion, respectively as of 31 December 2020, as the bank had higher

levels of deposit and bills and acceptances payable were higher due to increased

interbank borrowings and repurchased agreements transactions. Long-term debts net

of current portion decreased by P=16.4 billion due mainly on the reclassification from

noncurrent to current of the maturing bonds payable. Other Noncurrent liabilities

increased by 75.6% to P=5.5 billion as of 31 December 2020 from P=3.1 billion due to

various accruals in 2020. Accrued retirement benefits increased due to accruals made

for the year 2020.

LTG’s consolidated Total Equity slightly increased by 0.6% to P=255.5 billion as of 31

December 2020, on account of the net increase in the retained earnings brought about

by the income earned for the period ended 31 December 2020 of P=21.0 billion less

dividends declared and paid amounting to P=8.8 billion, which offset the decrease in the

other comprehensive income due to lower net unrealized gain in fair value of

investments and payment to fully settle the Preferred shares of subsidiaries issued to

Parent company amounting to P=8.5 billion.

17

2019

The Company’s consolidated Total Assets as of 31 December 2019 and 31 December

2018 amounted toP=1.3 trillion and P=1.1 trillion, respectively. Current Assets increased

by 15.0% or P=68.8billion and Noncurrent Assets were higher by P=99.3billion or 15.5%.

The increase in consolidated Current Assets by 15.0% from P=458.4 billion as of 31

December 2018 to P=527.1billion was primarily due to higher Cash and Cash

Equivalents level from P=177.0 billion as of end-2018 toP=184.9billionas of 31

December2019 on account of higher deposits received, Loans and Receivables –

Current Portion of the banking segment. Current portion of Loans and Receivables was

greater than end-2018 level by 24.2% at P=260.9 billion as the banking segment was able

to lend out more corporate loans in 2019.

Financial Assets at Fair Value through Other Comprehensive Income (FVTOCI) and

Financial Assets at Fair Value through Profit or Loss increased due to acquisitions

during the year and favorable hike in the fair values of the various investment portfolio.

Inventories as of 31 December 2019 amounted to P=12.2 billion, 7.0% lower than end-

2018 due to lower ending inventory levels of the property development and distilled

spirits segments. Other Current Assets amounted to P=11.4 billion as of 31 December

2019, 8.6% increase from P=10.5 billion as of 31 December 2018.

The 15.5% increase in consolidated Noncurrent Assets was mainly due to the

movements in the Noncurrent portion of Loans and Receivables and Financial Assets

at FVTOCI. Noncurrent portion of Loans and Receivables were higher by P=22.6billion

due to the growth in booked loans by the banking segment. Financial Assets at

FVTOCI were higher by P=62.4 billion on account of acquisitions of various investment

securities made as of 31 December2019.

Investments in associates and joint ventures increased by 34.2% on account of equitized

earnings recorded for the year ended December 2019. Property, plant and equipment –

at cost was higher by P=4.3billion due to various acquisitions during the year 2019 and

recognition of Right of Use of Assets. Investment properties were higher by 7.6% due

to various acquisitions during the year 2019.Deferred income tax assets were higher by

24.0% on account of adjustments on temporary tax differences recorded in 2019. Other

noncurrent assets were higher by P=1.1 billion, from P=6.4 billion as of end-2018 to P=7.5

billion as of 31 December 2019.

Consolidated Total Liabilities increased by 16.8% to P=1.0 trillion as of 31

December2019from P=866.6 billion as of 31 December 2018. This was on account of

the increase in Total Current Liabilities by 13.0% from P=775.8 billion in 31 December

2018 to P=876.7 billion as of the end of the current period and increase in Noncurrent

Liabilities of 48.9% from P=90.8 billion to P=135.2billion.

The current portion of the banking segment’s Deposit Liabilities amounted to P=772.1

billion as of 31 December2019, 14.8% higher than end-2018 balance. Accounts

Payable and Accrued Expenses increased to P=26.7 billion or 17.5% higher than P=22.7

billion as of 31 December 2018 due to the various accruals in 2019. Short-term debts

as of 31 December 2019 amounted to P=5.2 billion, 151.2% higher than end-2018 on

account of availments by the beverage segment and parent company. The current

18

portion of long-term debts outstanding of P=91 million as of 31 December 2018increased

to P=1.0 billion as of 31 December 2019 due to a reclassification from noncurrent to

current for the nearly maturing debt and recognition of current portion of lease liability

along with the recording of the right of use of asset account for the adoption of PFRS

16 - Leases.

Other current liabilities increased from 16.5 billion as of end-2018 to P=18.8 billion in

current period due to additional accrual of transactions during the year 2019. Current

portion of Bills and Acceptances Payable decreased by 14.4% due to settlement of

interbank loans from the BSP and local banks. The Current Financial Liabilities at Fair

Value through Profit or Loss were lower by 47.8% to P=246 million as of end-2019.

Income tax payable was lower by 31.8% versus the 31 December 2018 level due to the

income tax payments made in the current period. The current portion of Due To Related

Parties decreased from P=80 million to P=65 million as payments were made in 2019.

The increase in the Noncurrent Liabilities was on account of the higher Long-Term

debts net of current portion of the banking segment by P=53.0 billion as of 31 December

2019, as the bank issued fixed-rate bonds and Euro Medium Term Notes (EMTN)

partially offset by Noncurrent Bills and Acceptances Payable which decreased by

P=5.4billion.Other Noncurrent liabilities declined by 37.1% to P=3.1 billion as of 31

December 2019 from P=5.0 billion due to various settlements in 2019.

LTG’s consolidated Total Equity grew 9.9%to P=254.0 billion as of 31 December 2019,

on account of the increase in Retained Earnings coming from the net earnings during

the period and increase in the other comprehensive income from the unrealized gain in

fair value of investments. The increase in the noncontrolling interests were relative to

the increase in the other comprehensive income and issuance of stock rights by the

banking segment. This was partially offset by the partial redemption of the Preferred

shares of subsidiaries issued to Parent company amounting to P=9.5 billion.

2018

The Company’s consolidated Total Assets as of 31 December 2018 amounted to

P=1,097.8 billion, an increase of 19.7% from P=917.1 billion as of 31 December 2017.

This was mainly on account of the increase in Current Assets by 14.3% or P=59.4 billion

and increase in Noncurrent Assets of P=121.3 billion or 24.2%.

The increase in consolidated Current Assets by 14.3% from P=416.6 billion as of 31

December 2017 to P=475.0 billion was primarily due to the higher Current Portion of

Loans and Receivables on account of the increased booking of loans and higher

Financial Assets at Fair Value through Other Comprehensive Income (FVTOCI) –

formerly called Held To Maturity (HTM) Investments by the bank. Cash and Cash

Equivalents were higher from P=174.0 billion as of end-2017 to P=176.5 billion as of 31

December 2018. Inventories and Other Current Assets declined by P=0.26 billion and P=

3.4 billion, respectively, mainly due to lower inventory level of the property

development segment, while for Other Current Assets, it declined because of the

banking segments’ lower levels of FXTN and miscellaneous assets. Assets of Disposal

Group Classified as Held for Sale pertains to the banking segment’s PNB General

Insurance (PNB Gen) assets which will be exchanged for shares in Allied Bankers

Insurance Corporation (ABIC), an affiliate.

19

The 24.2% increase in Total Noncurrent Assets was mainly due to the movements in

the Noncurrent Financial Assets at Amortized Cost, Property, Plant and Equipment and

Noncurrent Portion of Loans Receivables. Noncurrent Financial Assets at Amortized

Cost were higher by 273.2% due to the bank’s reclassification of Financial Assets at

FVTOCI to HTM investments. Noncurrent Financial Assets at FVTOCI decreased by

31.9% to P=48.1 billion from P=70.7 billion. Noncurrent portion of Loans and

Receivables were higher by P=40.1 billion due to higher booking of loans by the bank.

Property, plant and equipment (PPE) – at cost was higher by P=0.8 billion due to various

acquisitions during the year 2018, while PPE – at appraised was higher byP=24.1 billion

due to the banking segment’s new appraisal of properties in 2018.

Investment in Associates and Joint Ventures was higher by P=3.1 billion to P=20.3 billion,

due to higher equity earnings from PMFTC. Other noncurrent assets and Deferred

income tax assets were higher by P=0.8 billion and P=0.4 billion, respectively compared

to end-2017 balances.

Consolidated Total Liabilities increased by 19.1% to P=859.4 billion as of 31 December

2018 from P=721.8 billion as of December 31, 2017. This was on account of the increase

in Total Current Liabilities by 16.5% from P=665.4 billion in 31 December 2017 to P=

775.0 billion as of the end of the current period and increase in Noncurrent Liabilities

of 62.5% from P=56.4 billion to P=91.6 billion.

The current portion of the banking segment’s Deposit Liabilities amounted to P=672.3

billion as of 31 December 2018 – 14.3% higher than 312017. Accounts Payable and

Accrued Expenses increased to P=22.5 billion or 2.2% higher than P=22.0 billion as of 31

December 2017 due to the various accruals as of end-2018. Income tax payable is 9.1%

versus the 31 December 2017 level due to the income tax payments made during the

year 2018. Financial liabilities at Fair Value through P=0.5 billion as of 31 December

2018, on account of the bank’s higher derivative liabilities. Short-term debt was higher

by 32.3% to P=2.1 billion in the current period from P=1.6 billion in 31 December 2017,

due to the availment of a loan by the beverage segment. The current portion of Due to

Related Parties increased to P=0.1 billion on account of reclassifications made during

the year. The current portion of Bills and Acceptances Payable increased by 65.3%

mainly due to the higher currently maturing bills and acceptances payable by the

banking segment. The current portion of long-term debts outstanding of P=91 million as

of 31 December 2018 was lower versus end-2017 due to payments made during the

year. Other current liabilities decreased from P=15.2 billion as of end-2017 to P=8.6

billion in current period due to various settlements made during the year 2018.

Liabilities of disposal group classified as held for sale pertains to the banking segment’s

PNB Gen Liabilities.

The increase in the Noncurrent Liabilities was on account of the issuance of bonds by

the banking segment which increased the Long-Term Debts Noncurrent portion by P=

17.1 billion to P=18.6 billion as of end-2018, and higher Noncurrent Bills and

Acceptances Payable by P=2.3 billion of the banking segment. Deposit Liabilities

(noncurrent) of the banking segment increased from P=39.3 billion as of 31 December,

2017 to P=47.2 billion as of 31 December 2018. Accrued Retirement Benefits decreased

by 25.8% or P=0.6 billion. Other noncurrent liabilities increased by 24.3% to P=5.9 billion

as of 31 December 2018 from P=4.7 billion due to various accruals and additional

20

obligations incurred in 2018. Deferred income tax liabilities increased toP=8.8 billion

due to various tax temporary timing differences accrued in 2018.

LT Group’s consolidated Total Equity grew 18.4% to P=231.2 billion as of 31 December

2018, on account of the increase in Retained Earnings coming from the net earnings

during the period and increase in Other Comprehensive Income of 257.9% due to the

increase in revaluation surplus of the banking segment’s properties.

3.3. KEY PERFORMANCE INDICATORS

LTG uses the following major performance measures. The analyses are based on

comparisons and measurements on financial data of the current period against the same

period of the previous year. The discussion on the computed key performance indicators

can be found in the “Results of Operations” in the MD&A above.

2020 vs 2019

1.) Gross Profit Ratio

Gross profit ratio in 2020 was 54.6% versus 50.3% in 2019.

2.) Return on Equity

Consolidated Net Income Attributable to Equity Holders of the Parent Company

for 2020 amounted to P=21.0 billion; lower by 9.1% from last year’s P=23.1

billion. Ratio of net income to equity is 11.3% in 2020 and 12.4% in 2019.

3.) Current Ratio

Current Ratio for 2020 is 0.72:1 while last year’s was 0.60:1.

4.) Debt-to-equity ratio

Debt-to-equity ratio for 2020 is 4.30:1 as compared to last year’s 3.98:1.

5.) Earnings per share

Earnings per share attributable to holders of the parent company for 2020 is

P=1.94 and P=2.14 in 2019.

21

2019 vs 2018





for 2019 amounted to P=23.1 billion; higher by 42.7% from last year’s P=16.2


3.) Current Ratio





Earnings per share attributable to holders of the parent company for 2019 is P=

2.14 and P=1.50 in 2018.

2018 vs 2017





for 2018 amounted to P=16.2 billion; higher by 49.5% from last year’s P=10.8


3.) Current Ratio





Earnings per share attributable to holders of the parent company for 2018 is P=

1.50 and P=1.00 in 2017.

22

The manner by which LTG calculates the indicators above is as follows:

Gross profit ratio = Gross profit/Net sales

Return on Equity = Net Income Attributable to Equity Holders of the

LTG/Stockholders equity

Current Ratio = Current assets/Current liabilities

Debt-to-equity ratio = Total liabilities/Total equity

Earnings per share = Net income attributable to holders of the parent

company/weighted average number of shares

3.4. OTHER MATTERS

(i) The COVID-19 pandemic has affected the overall economy since the

government declared an Enhanced Community Quarantine (ECQ) starting mid-

March 2020. This affected the industries that LTG operates in particularly the

bank, tobacco and the alcoholic and non-alcoholic businesses. Interest rate

fluctuations may likewise affect the different businesses of the Group. Aside

from this, there are no other trends or any known demands, commitments,

events or uncertainties that will result in or that are reasonably likely to result

in the Group’s increasing or decreasing liquidity in any material way. The

Group is not in default or breach of any note, loan, lease or other indebtedness

or financing arrangement requiring it to make payments. The Company does

not have any liquidity problems.

(ii) There are no events that will trigger direct or contingent financial obligation that

is material to LTG, including any default or acceleration of an obligation.

(iii) There are no known material off-balance sheet transactions, arrangements,

obligations (including contingent obligations), and other relationships of LTG

with unconsolidated entities or other persons created during the reporting

period.

(iv) On-going and planned capital expenditure projects of the Group are as follows:

Distilled spirits

TDI will have various capital expenditure projects to improve its manufacturing

facilities.

Beverage

ABI continuously makes investments that enhance production safety, improve

manufacturing efficiency, and improve the impact of its production processes

to the environment. Apart from these, ABI has also invested in machinery and

23

equipment that will enhance its manufacturing capacity namely in the bottled

water and carbonated soft drinks segments.

Apart from investments in the production process, ABI is in the process of re-

fleeting its delivery trucks and upgrading its handling equipment to better

control its repairs and maintenance costs and ensure safety in the transport of

materials and products.

Investments in returnable containers were also made to replace bottles and crates

used in the production of Cobra, Vitamilk and Summit Water in returnable glass

bottles.

International Bottled Water Association Membership

ABI’s bottled water plant in Cabuyao has been a member of the International

Bottled Water Association (IBWA) since it started its bottled water business in

1992. IBWA in reference to U.S. FDA regulations of the Code of Federal

Regulations prescribes the Good Manufacturing Practices for Processing and

Bottling of Bottled Drinking Water. This includes specific design and

performance requirements for determining whether the facilities, methods,

practices, and controls used in the processing, bottling, holding and shipping of

bottled drinking water are in conformance with or are operated or administered

in conformity with good manufacturing practices to assure that bottled drinking

water is safe and has been processed, bottled, held and transported under

sanitary conditions.

ISO 9001:2015 Quality Management System Certification

ISO is a standard setting body that provides requirements, specifications,

guidelines or characteristics that ensure that products and services are safe,

reliable and are of good quality. To be ISO 9001:2015 certified, an organization

must demonstrate its ability to consistently provide products that meets

customer and applicable statutory and regulatory requirements. ABI

manufacturing site in Cabuyao were recertified to ISO 9001:2015 in the first

half of 2019, while the ABI manufacturing site in El Salvador was certified

mid-2019. IPI‘s manufacturing facilities in Cabuyao, Pampanga, and Davao are

likewise recertified to ISO 9001:2015. ISO 9001:2015 is an updated

requirement for Quality Management System ISO 9001:2008.

(v) The Group recognizes the COVID-19 pandemic effect on the overall Philippine

economy. Interest rate fluctuations may likewise affect the different businesses

of the Group. Apart from this, there are no known other trends, events or

uncertainties that have had or that are reasonably expected to have a material

favorable or unfavorable impact on net sales, revenue or income from continuing

operations.

(vi) There are no significant elements of income or loss that did not arise from the

Company’s continuing operations.

(vii) Causes for any material change from period to period include vertical and

horizontal analyses of any material item;

24

Results of the Company’s Horizontal (H) and Vertical (V) analyses showed the

following material changes as of and for the years ended 31 December 2020

and 2019:

1. Cash and cash equivalents – V, 8%; H, 64%

2. Financial assets at fair value through other comprehensive income (FVTOCI) -

current – H, 252%

3. Financial assets at amortized cost – current – H, 59%

4. Loans and receivables-current – H, (15%)

5. Inventories – H, 8%

6. Assets of disposal group classified as held for sale – H, 100%

7. Financial assets at FVTOCI - noncurrent – H, (31%)

8. Financial assets at amortized cost – noncurrent – H, (27%)

9. Investment in associates and joint ventures – H, (13%)

10. Deferred income tax assets – H, 272%

11. Other noncurrent assets- H, (19%)

12. Deposit liabilities – current – H, 7%

13. Financial liabilities at fair value through profit or loss – current – H, 186%

14. Bills and acceptances payable - current – H, 41%

15. Short-term debts – H, (8%)

16. Accounts payable and accrued expenses – H, (22%)

17. Income tax payable – H, 46%

18. Long-term debts-current – H, 1,349%

19. Other current liabilities – H, (46%)

20. Liabilities of disposal group classified as held for sale – H, 100%

21. Deposit liabilities – noncurrent – H, 27%

22. Bills and acceptances payable - noncurrent – H, 242%

23. Long-term debt – net of current portion – H, (23%)

24. Accrued retirement benefits – H, 42%

25. Other noncurrent liabilities- H, 76%

26. Preferred shares of subsidiary issued to Parent Company – H, (100%)

27. Other comprehensive income – H, (17%)

28. Other equity reserves – H, (292%)

29. Reserves of disposal group classified as held for sale – H, 100%

30. Retained earnings- H, 12%

31. Beverage revenue – H, (20%)

32. Distilled spirits revenue – H, 30%

33. Property development revenue – H, (23%)

34. Cost of sales and services – H, (8%)

35. Equity in net earnings of associates and joint ventures – H, 19%

36. Selling expenses – H, (32%)

37. General and administrative expenses – V, 17%; H, 52%

38. Finance costs – H, (24%)

39. Finance income – H, (71%)

40. Foreign exchange gains – net – H, (29%)

41. Others-net – H, (33%)

42. Provision for income tax – current – H, 43%

43. Provision for income tax – deferred – V, (6%); H, 1,195%

44. Net income- continuing operations – V, (6%); H, (19%)

45. Net income- discontinued operations – H, (34%)

25

46. Total Net Income – V, (15%); H, (19%)

47. Net income attributable to parent – H, (9%)

48. Net income attributable to noncontrolling interests – H, (71%)

The causes for these material changes in the balance sheet and income statement

accounts are all explained in the Management’s Discussion and Analysis

(MDA) – Results of Operations and Financial Condition above.

(viii) There are no seasonal aspects that have a material effect on the financial

condition or results of operations of LTG.

ITEM 4. MARKET FOR REGISTRANT'S COMMON EQUITY AND

RELATED STOCKHOLDER MATTERS

4.1. MARKET INFORMATION

The principal market for the Company’s common equity is the Philippine Stock

Exchange.

STOCK PRICES

CLOSE HIGH LOW

2018

1st Quarter 18.80 19.72 18.80

2nd Quarter 18.08 18.44 17.90

3rd Quarter 14.40 15.20 14.40

4th Quarter 15.50 15.56 15.26

2019

1st Quarter 16.10 17.60 14.60

2nd Quarter 15.20 17.20 14.68 3rd Quarter 13.94 16.40 13.40 4th Quarter 11.98 14.40 11.00

2020 1st Quarter 8.30 12.24 5.50 2nd Quarter 8.00 9.77 7.11 3rd Quarter 9.00 9.05 7.11 4th Quarter 13.10 14.08 8.64 2021 1st Quarter 13.50 15.50 12.50

The latest trading price as of 07 April 2021, the latest practicable date, is 13.90.

26

4.2. HOLDERS

As of 31 March 2021, the Company has 376 shareholders owning 10,821,388,889

common shares. The top 20 stockholders as of 31 March 2021 are as follows:

Stockholders’ Name No. of Common

Shares Held

% to Total

Tangent Holdings, Corp. 8,046,318,193 74.3557

PCD Nominee Corporation (Non-Filipino) 1,046,920,984 9.6746

PCD Nominee Corporation (Filipino) 9,666,523,322 8.9316

Dragon Castle Holdings Ltd. 198,535,900 1.8347

Hinner Resources Ltd. 157,195,600 1.4526

Advance Goal Ltd. 152,812,600 1.4121

Absolute Classic Ltd. 95,811,000 0.8854

Conqueror Vision Ltd. 81,913,000 0.7570

Conway Equities, Inc. 35,000,000 0.3234

Pan Asia Securities Corp. 24,448,000 0.2259

Goldlabel Equities Corp. 5,039,800 0.0466

All Seasons Realty Corp. 4,974,794 0.0460

Dragonstar Management Corp. 1,773,900 0.0164

Kentron Holdings & Equities Corp. 569,800 0.0053

Luys Securities Co., Inc. 501,000 0.0046

Mandarin Securities Corp. 358,000 0.0033

Atlas Agricultural & Mercantile & Dev. 299,475 0.0028

Honorio Poblador Jr. 295,230 0.0027

Donald J.D. Nye 272,250 0.0025

Alex M. Tiongco 83, 600 0.0008

* LTG has no preferred shares.

Voting Rights

Each share is entitled to one (1) vote.

With respect to the election of Directors, stockholders of record are entitled to as many

number of votes as is equal to the number of shares he owns multiplied by eleven (11), the

number of Directors to be elected. A stockholder may (i) cast all votes in favor of one

(1) nominee, or (ii) cast votes for as many Directors to be elected, or (iii) distribute

the votes among as many nominees he shall see fit.

4.3. DIVIDENDS

a.) Dividend declaration

Date Declared Dividend

Declared

Amount Date Paid

23 November 2020 Special Cash P=0.15 per share 14 December 2020

14 August 2020 Special Cash P=0.23 per share 8 September 2020

22 May 2020 Regular Cash P=0.15 per share 17 June 2020

27

Special Cash

P=0.28 per share

20 April 2019 Regular Cash

Special Cash

P=0.15 per share

P=0.15 per share

09 May 2019

13 March 2018 Regular Cash

Special Cash

P=0.15 per share

P=0.05 per share

11 April 2018

b.) Dividend Policy

Shareholders shall have the right to receive dividends subject to the

discretion of the Board. They have the right to receive dividends out of the

Unrestricted Retained Earnings of the Company when the said earnings become

in excess of 100% of its Paid-in Capital Stock, except: (a) When justified by

definite corporate expansion projects or programs approved by the Board; (b)

When the Company is prohibited under any loan agreement with any financial

institution or creditor, whether local or foreign, from declaring dividends

without its consent, and such consent has not been secured; or (c) When it can

be clearly shown that such retention is necessary under special circumstances in

obtaining in the Company, such as when there is a need for special reserve for

probable contingencies.

c.) Restrictions that limit the ability to pay dividends on common equity or that

are likely to happen in the future.

There are no restrictions that limit the Company’s ability to pay dividends

apart from the requirement of law that the Company should have unrestricted

retained earnings. The corporate by laws provide that dividends may be

declared “out of the surplus profits when such profit shall, in the opinion of

the Directors, warrant the same.”

4.4. RECENT SALES OF UNREGISTERED SECURITIES

(FOR THE PAST THREE YEARS)

There are no recorded sales of unregistered securities during the past three years.

ITEM 5. INDEPENDENT PUBLIC ACCOUNTANTS AND EXTERNAL AUDIT

FEES

Please see Item 7 of the Information Statement.

ITEM 6. CORPORATE GOVERNANCE

To ensure awareness and compliance, all incumbent directors and key officers

of the Company attend an annual seminar on corporate governance conducted

by an SEC-accredited provider.

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The Company continues to review and strengthen its policies to ensure that such

policies are consistent with the leading practices on good corporate governance

that are in the best interest of the Company and its stakeholders.

In 2020, the Company conducted a self-assessment of the performance of the

Directors to ensure the effectivity of the Board members and likewise improve

on areas which requires its attention. The evaluation was conducted via the

sending of individual forms per director through electronic mail wherein they

were tasked to rate their own performance as well as that of the committee which

they are a part of.

The form is composed of two (2) parts: (1) Questions on the Director’s

individual qualitative performance; and (2) Questions to the Board. Under part

1, the director is asked to rate himself/herself based on different questions

pertaining to his/her individual performance. On the other hand, under part 2 of

the form, the director is asked to rate the performance of the Board as a whole.

Questions include, but are not limited to, the number of times the Board

conducts its meetings, the attendance of the director/matters discussed during

the meeting. The forms are thereafter submitted to the Office of the Corporate

Secretary for consolidation and evaluation.

In 2020, the Board of Directors held a total of seventeen (18) meetings:

twelve (12) regular meetings, five (5) special meetings, and one (1)

organizational meeting. Each Board member complied with the minimum

total Board meeting attendance requirement of 50%. The summary of

attendance of each Director to Board and committee meetings are attached

as Annex A.

The Company undertakes to provide without charge to each shareholder, upon written

request by the shareholder, a copy of the Company’s Annual Report on SEC Form 17-A.

Please direct all such requests to the Corporate Secretary, Atty. Ma. Cecilia L. Pesayco, 2/F

PNB Makati Center, 6754 Ayala Avenue, Makati City, Philippines.

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ANNEX A

SUMMARY OF ATTENDANCE TO BOARD AND COMMITTEE MEETINGS

In 2020, the Board conducted 18 meetings which were religiously attended to by its

members, as shown in the table below:

OFFICE NAME DATE OF

APPOINTMENT

NUMBER

OF

MEETINGS

HELD

NUMBER

OF

MEETINGS

ATTENDED

%

Chairman

(ED)

Lucio C.

Tan

June 30, 2020 18 17 94

Member Carmen

K. Tan

June 30, 2020 18 17 94

Member Harry C.

Tan

June 30, 2020 18 18 100

Member Michael

G. Tan

June 30, 2020 18 18 100

Member Lucio C.

Tan III

June 30, 2020 18 18 100

Member Vivienne

K. Tan

June 30, 2020 18 18 100

Member Juanita T.

Tan Lee

June 30, 2020 18 18 100

Independent Johnip G.

Cua

June 30, 2020 18 18 100

Independent Mary G.

Ng

June 30, 2020 18 17 94

Independent Wilfrido

E.

Sanchez

June 30, 2020 18 18 100

Independent Florencia

G.

Tarriela

June 30, 2020 18 18 100

30

In 2020, the Board conducted 8 Audit and Risk Management Committee meetings which were religiously attended to by its members, as shown in the table below:

OFFICE NAME DATE OF

APPOINTMENT

NUMBER

OF

MEETINGS

HELD

NUMBER

OF

MEETINGS

ATTENDED

%

Chairman

(ED)

Johnip

G. Cua

June 30, 2020 8 8 100

Member Juanita

T. Tan

Lee

June 30, 2020 8 7 87.5

Member Mary G.

Ng

June 30, 2020 8 5 62.5

Member Wilfrido

E.

Sanchez

June 30, 2020 8 8 100

Member Florencia

G.

Tarriela

June 30, 2020 8 8 100

In 2020, the Board conducted 1 Corporate Governance Committee meeting which was

religiously attended to by its members, as shown in the table below:

OFFICE NAME DATE OF

APPOINTMENT

NUMBER OF MEETINGS

HELD

NUMBER OF MEETINGS ATTENDED

%

Chairman (ED)

Florencia G.

Tarriela

June 30, 2020 1 1 100

Member Michael G. Tan

June 30, 2020 1 1 100

Member Juanita T. Tan

Lee

June 30, 2020 1 0 0

Member Johnip G. Cua

June 30, 2020 1 1 100

Member Wilfrido E.

Sanchez

June 30, 2020 1 1 100

LT GROUP, INC. MANAGEMENT REPORT ITEM 1. BUSINESS 1.1 ...

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